Cross challenges Madigan on pensions

Wednesday

SPRINGFIELD -- The difficult process of revamping Illinois’ state government pension system led to a dramatic confrontation Tuesday between the top two leaders in the House of Representatives.

SPRINGFIELD -- The difficult process of revamping Illinois’ state government pension system led to a dramatic confrontation Tuesday between the top two leaders in the House of Representatives.

House Republican Leader Tom Cross of Oswego angrily objected to a pension bill backed by Speaker Michael Madigan that was approved Tuesday morning in the House Personnel and Pensions Committee.

The GOP opposition stems from a provision that would gradually shift the state’s pension costs for teachers and university employees to local school districts and universities.

Most believe that pension legislation can’t pass the General Assembly without at least some support from members of both parties.

Senate Bill 1673 cleared the pensions committee on a 6-3 vote, with five Democrats and one lame-duck Republican, Rep. Dave Winters, R-Shirland, voting to move the legislation to the House floor. Three Republicans, including Rep. Raymond Poe, R-Springfield, voted “no.”

Cross: Is Madigan serious?

After the hearing, Cross -- in remarks to reporters and in a floor speech -- accused Madigan, D-Chicago, of using the cost shift as a “poison pill” aimed at killing pension legislation.

“What’s the speaker up to, and is he really serious about pension reform?” Cross said to reporters.

Madigan said the costs of teacher and university pensions need to be transferred from the state because teachers and university employees are not state employees.

“Those spending the money are responsible for paying the bill,” Madigan said, alluding to the fact that school districts determine teacher salaries and therefore have some control over how much teacher pensions will be in retirement. “In Illinois, we have a very unusual situation.”

Madigan dismissed Republican concerns that shifting financial responsibility for pensions will result in local property tax increases.

“Their responsibility is to live within their costs, live within their budgets.” Madigan said of school districts. “Will there be some difficult (collective) bargaining? Yes … but that’s why people seek to serve on school boards.”

Cross said Madigan isn’t truly interested in addressing teacher pensions -- only those of state employees and university and community college employees.

“I think this is typical Speaker Madigan,” Cross said. “Let’s throw a poison pill in there so (Madigan) can say, ‘I tried. It didn’t happen.’ He told me three weeks ago he didn’t want to do teachers. I said, ‘I think you need to do teachers. Teachers need to be in the mix.’ And he said, ‘I don’t want to do them. I think it’s difficult. I think it’s complicated.’

“So this is his way to not address the teacher problem, which is a very, very shameful approach in my opinion.”

If Madigan removes the cost shift from the legislation, Cross said, House Republicans will support it.

But Cross's efforts to eliminate the provision failed on the floor of the House, leading him to lambaste Madigan personally for a litany of pension abuses.

“Maybe you need to take responsibility, Mr. Speaker, for your actions,” Cross told the House. “For the last 40 years, you’ve had your fingerprints on the mess we’ve had today.”

Madigan: ‘Emotion of the moment’

After Cross finished, Madigan responded carefully.

“Frustration, tension, interaction with different personalities pursuing different agendas – that’s life in the General Assembly. That’s life in the House of Representatives,” Madigan said on the House floor. “I’ve adopted a certain position on pension change. Some of you agree with me. Some of you don’t. That’s what happens here legitimately.

“I don’t plan to issue any kind of statements that are designed to be derogatory toward anybody. There have been some directed at me. … I don’t plan to respond that. … Let’s not get swept up in the emotion of the moment.”

Cross’s accusations aside, the cost shift puts Republicans in a difficult political position. While it could lead to local property tax increases, Republicans have led the charge on pension reform. And a phased-in cost shift is backed by a key Cross ally: Ty Fahner, a former state attorney general and head of the Civic Committee of the Commercial Club of Chicago.

“In all fairness, that’s exactly where the responsibility belongs, as long as it’s done over time so that it doesn’t result in an immediate tax increase,” Fahner told The State Journal-Register in an interview on Friday.

“That’s a wild concoction,” Montgomery said. “That (cost shift) is not our idea. … They’re hearing from our members, and our members are outraged. They thought these people took an oath to uphold the constitution of the state of Illinois, not ignore the law to pick their pockets.”

Cross also said the legislation should make the same changes to judicial pensions as it does to other pension systems. The bill makes no changes in judges’ retirement provisions, which has outraged rank-and-file members of the systems for state employees, teachers and university employees.

If they were in the bill, however, judges would decide whether changes to their own pensions are constitutional. Madigan said the issue will end up in the Illinois Supreme Court and he wants to “avoid putting judges in a conflict of interest.”

Chris Wetterich can be reached at (217) 788-1523.

What’s in SB1673

-- Employees and retirees would be offered two choices: have access to a state-sponsored health care plan upon retirement, have their raises count toward their pensions and a lesser cost-of-living adjustment; or keep the 3 percent compounded annual COLA that they have today.

-- If they keep retiree health care and pensionable raises, their COLA will be one-half of the urban consumer price index or 3 percent, whichever is less. The COLA will not be compounded; instead, each COLA increase will be based on an employee’s original pension. For example, if an employee retires with a $50,000 salary and the COLA is 1 percent in the first year of retirement, the retiree will receive $50,500 the next year. If it is 1 percent again in the second year, the total pension amount will be $51,000 the next year.

-- Employees and retirees would have from Jan. 1, 2013 to May 31, 2013 to make their choices.

-- If employees and retirees choose the lesser COLA, they will receive no boosts in their pensions until age 67 or 5 years after they retire, whichever comes first. This will affect some employees who have already retired. For example, if an employee retired at age 55, is now 58 and chooses the new COLA, the new COLA will not kick in until the retiree reaches age 60. That employee will receive no COLA for the next two years.

-- The bill would phase in a shift of the “normal” pension costs for teachers and university employees to school districts, state universities and community colleges. The normal cost is the total benefit accrued by active employees for the current fiscal year. The shift would start in fiscal year 2014. Each district, university and college would pay 1 percent of their employees’ payroll each year for the first six years, then one-half of 1 percent in subsequent years until the cost of funding each system’s pension benefits is fully funded at the local level.

-- If the state is more than 90 days late in making a payment to the pension systems, they can go to court to recover the money. Unions believe this is not an adequate guarantee of future funding by the state.

-- Some employees have speculated that if they rush to retire now, the courts might strike down provisions that apply to those who have already retired, but uphold them for those who had not yet retired when the governor signs the bill. State Rep. Elaine Nekritz, D-Northbrook, chairwoman of the House Personnel and Pensions Committee, said Tuesday that’s wrong. All provisions concerning the choice employees make will be non-severable, meaning courts will have to either uphold the changes in full or strike them down in full.

A new Tier 2

The legislation creates a new “cash balance plan” designed to replace Tier 2 retirement benefits given to employees hired after Jan. 1, 2011. Current Tier 2 employees could convert to the plan, and all new employees will be enrolled in it after July 1, 2013.

The idea, the brainchild of Rep. Daniel Biss, D-Evanston, creates a “notional” account for everyone in Tier 2. The pension systems would basically keep track of how much money the employees have contributed, how much the employer has contributed, and the earned interest, which would be guaranteed to be between 4 percent and 10 percent, based on the value of U.S. treasuries.

“The money in each individual’s account is purely for the purposes of calculating the benefit they will receive upon retirement, and do not actually segregate assets within the fund,” according to a House Democratic analysis of the plan.

The employee’s pension would be determined by using actuarial tables to figure out how long it would take for the employee to use up his or her balance at retirement, which could begin at age 59 1/2. A 3 percent cost-of-living adjustment would be applied over the course of the employee’s life. The amount would be guaranteed, even if the employee exhausted the amount in his or her account.

People in the new Tier 2 could roll over 40 percent of their balance to another qualified retirement plan if they have five years of service credit. This makes it more portable than the current Tier 2 defined benefit plan. The other 60 percent would stay, collect interest and be payable upon retirement.

The plan tries to fix problems with Tier 2 and make it slightly more generous. The current version of Tier 2 could run afoul of federal law, which requires employers who don’t participate in Social Security to provide a minimum benefit level. A Teachers’ Retirement System analysis has projected that Tier 2 could have problems meeting this standard in the future.

What’s next

It’s unclear if the Illinois House will try to vote on Speaker Michael Madigan’s pension legislation Wednesday. But the Senate Executive Committee will hear three different pension bills at 10 a.m. Wednesday that incorporate the elements of Madigan’s plan. Each bill affects one retirement system and the General Assembly Retirement System.

For example, the first bill would apply the changes to GARS and the Teachers’ Retirement System. The second would apply to GARS and the State Universities Retirement System. And the third would apply to GARS and the State Employees Retirement System.

The SURS and TRS bills would shift pension costs to local school districts, universities and community colleges.

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